By Mouayed Makhlouf , IFC
Look out across the Middle East and North Africa (MENA), and you’ll see a rising tide of youth unemployment. In fact, MENA has the highest rate of official unemployment of any region in the world, averaging at around 11 per cent.
Those are sobering numbers – and a sign that the region hasn’t done enough to create opportunities for its young people. But unemployment in the Middle East and North Africa doesn’t need to be that high.
The region has a large number of companies, many in up-and-coming industries like information technology or logistics, which need workers. Yet job seekers just don’t have the technical skills that employers are looking for, causing many positions to remain unfilled. Read more
Parallel to the global narrative about Africa’s economic progress, the discussion about private equity in the region has taken on a bipolar nature—either there is too much money chasing too few deals or there is a dearth of capital for African countries’ entrepreneurs. The Economist warned in 2015 that “too much money is pouring into too few funds, chasing the few big deals on offer”. At the same time, the IFC estimates that “up to 84 per cent of small and medium-sized enterprises (SMEs) in Africa are either un-served or underserved” in terms of access to capital.
Given our collective decades’ worth of experience in advising and investing in African markets, we believe that both statements are true and to bridge the gap the private equity industry needs to have a Goldilocks moment of right sized money for Africa’s next wave of growing companies. Read more
By Martin Fischer, Alaco
A series of recent Chinese takeovers of Germany’s top tech companies has unnerved many Germans who fear the trend could undermine the economy. Germany has always been more comfortable as an investor than a recipient of investment, with the Chinese shopping spree sparking a wave of protectionist sentiment, which some German politicians are looking to exploit.
Germany has emerged as the preferred destination for Chinese takeovers in Europe. In the first half of 2016 alone, EY, an accountancy firm, reported that Chinese investment in Germany exceeded $10bn – more than the combined total for the previous five years. But Germans are nervous about the influx of cash, primarily because the companies being acquired are small and medium-sized enterprises that form the backbone of the economy. Read more
Amid heated national debates on immigration in Europe and the US, economic research is increasingly showing that migration is good both for countries of origin and for countries of destination, and for the global economy. But crucially missing from the current debate is how migration, when increasingly driven by man-made calamities, is sweeping under the carpet underlying problems of environmental destruction, overpopulation and joblessness. While favouring migration on grounds of overall economic well-being, the top priority must be to address these contributing factors.
Consider first the global balance on migration. Some 250m people — 3 per cent of the global population — are migrants, of which 20m are refugees fleeing armed conflicts and persecution, and escaping poverty and, increasingly, the effects of natural disasters. The US, Russia, Germany, Saudi Arabia, UK and India are in the top 10 destinations in terms of numbers of arrivals. Migration helps to lower unemployment rates at home and raises remittances, which are vital economic pillars in many economies such as Bangladesh, El Salvador, Nepal and the Philippines. In 2015, the remittances of overseas workers to developing countries amounted to nearly $450bn, three times official development assistance going to the developing world. Read more
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We had incorporated a much better short-term outlook for emerging markets in our EM trade recommendations since the second quarter of this year, essentially on the back of a few important developments.
Firstly, the exhaustion in the USD cycle, particularly supported by the market’s perception of a more tentative US Federal Reserve. Indeed, as highlighted by our team on previous occasions, differently from the period 2013-15, we have been trading “policy convergence in G3″, rather than “policy divergence”. This fundamentally reduced the momentum in the USD bullish cycle seen in the previous years. Read more
By Isabel Stoker, Alaco
Sri Lanka is set to sign a major trade deal with India later this year, which it hopes will be the first step towards the island becoming a financial and business hub in the region. But the government of Ranil Wickremesinghe, prime minister, will have to work harder to win over domestic opponents of the Economic and Technological Cooperation Agreement (ETCA) who fear it will result in the country’s exploitation by Indian businesses.
Earlier this month Mr Wickremesinghe announced that the ETCA would be signed by the end of December. Sri Lanka has two other free trade agreements in the pipeline, with Singapore and China. The government began negotiations on the former in June and is expected to complete the latter by March 2017. Read more
We now know that the UK will trigger Article 50 of the Lisbon Treaty by the end of March 2017, giving the country two years to negotiate its exit from the European Union. But while most pundits have focused on the UK’s future policies regarding the EU, the UK must think seriously about how to use the opportunity of Brexit to reconsider its trading relationships with Asia, the world’s fastest-growing region.
Asia is a bright spot in a fragile world economy. While advanced economies are projected to grow at an anaemic 1.4 per cent this year, developing countries in Asia continue to grow at 5.7 per cent, with India leading the way at an impressive 7.4 per cent clip. What’s more, the region is home to a growing consumption-oriented middle class, which will reach over 2bn people by 2030. Read more
Ukraine’s track record of massive corruption in energy is a sadly familiar story. Billions of dollars have been siphoned off annually into political largesse and party war chests. Successive administrations have proclaimed reform even as insiders fought over energy franchises. Unless corrected, the energy sector will continue to corrupt Ukrainian politics and make the country vulnerable to external threats.
Ukraine’s energy sector is also crucial to its neighbours. Although its advantages in energy transit have been eroded, Ukraine still transports nearly half of Russia’s gas exports to Europe, at least until additional bypass pipelines – Nord Stream 2 and Turkish Stream – can be built. Russia has steadfastly built new pipelines to bypass Ukraine, and employed transit deals to compromise its leaders and to demonstrate to European customers that Ukraine is an unreliable transit partner. Read more
By Max J. Zenglein, Mercator Institute for China Studies
China’s leaders place high hopes on the vibrancy of the economy’s service sector, but in reality it has not been able to fill the void left by the decline of manufacturing. The inability of services to pick up the slack in turn creates a temptation for the government to delay overdue structural reforms while maintaining a reliance on investment-driven growth. Read more
The globally-adopted target to double the productivity of small-scale farmers, set by the United Nations’ Sustainable Development Goals last year, remains out of reach for most emerging markets. That is according to a new report by the Global Harvest Initiative (GHI) released at the Borlaug Dialogue in Iowa this week. This raises the question: how will we feed the projected 9.7bn people that will be on our planet by 2050, when more than half of them will live in low and middle-income countries?
The GHI defines productivity as a measure of output per unit of input. Our analysis shows that global agricultural productivity must increase by 1.75 per cent annually to meet demand. While the global average rate of productivity growth is only just missing the mark at 1.73 per cent, low-income countries are lagging far behind, with an average annual rate of just 1.3 per cent. Read more
In Economics 101 we teach students that social “bads” should be taxed and social “goods” should be subsidised. When it comes to jobs, however, this principle is observed in the breach.
In addition to paying taxes on their incomes, as well as on the goods and services they buy on the market, workers and their employers also pay social security, also known as payroll taxes on their salaries. Read more
The election of Antonio Guterres as the next secretary-general of the United Nations looks, on the surface of it, like business as usual. A group of ageing men has chosen another ageing man to lead the world for the next four years. In fact, there are grounds for thinking that something significant and positive may have changed in the way the UN works.
Guterres is the first former head of government to have been given the job. Previous holders have all been mid-ranking ministers or career diplomats rather than senior political leaders. The big powers have been happy to keep it that way because they are jealous of their prerogatives and don’t want the person running the UN to have too many ideas of their own. In the words of one popular quip, they want a secretary, not a general. Read more
Investors in Ukrainian assets have been well rewarded on the back of the country’s improved economic performance. The local currency UX equity index is up 22 per cent year to date while the Euro denominated WIG-Ukraine Index is 33 per cent higher. That compares with a 15 per cent gain in the MSCI EM Index over the same period. Debt instrument investors have also shared in the gains with, for example, the yield on Ukraine 2020 sovereign debt dropping from 9.8 per cent at the start of the year to 8.2 per cent in early October. The performance of some corporate issues has been even better with, for example, the yield in the MHP 2020 Eurobond dropping from 12.1 per cent to 9.4 per cent in the same period.
The question now is whether the solid progress achieved in the economy over the past 12 months can continue, and drive asset prices even higher, or whether Ukraine is about to enter a more difficult and dangerous phase that may disrupt the recovery and again boost the perception of investment risk. Read more
The end is in sight for Google’s seven wilderness years in China. With none of the theatrics that accompanied its voluntary withdrawal from the country due to web-search censorship in January 2010, Google is now firmly on a path not only to return to China but also to potentially seize a spot alongside Apple as one of the most profitable tech companies there.
This is a likely outcome of Google’s announcement last week that it is entering with full force the global consumer hardware industry. Google Pixel mobile phones, Google Home artificial intelligence-enabled speakers, Google Daydream View virtual reality headsets, these will be the engines of Google’s revival in China. Based on what Google has so far revealed – including pricing – these products may find a large market among Chinese consumers.
The company has made no specific mention of plans to re-enter China. China’s government will not likely strew the ground with rose petals to welcome Google back. Read more
As Ukraine prepares for the annual IMF/World Bank meetings this weekend, its delegates will be acutely aware that the central topic they will be pressed on in Washington is the future of the reform process in their country. This is because Ukraine continues to send mixed signals, when clarity is needed more than ever.
Only days after the IMF approved the third tranche of its support package for Ukraine on September 14 came a government move to take control of Ukrtransgaz, the company that runs the gas transit infrastructure that takes Russian gas across Ukraine to Europe, away from its parent Naftogaz and place it under the direct control of the economy ministry. Read more
By Septimus Knox, Alaco
Remote, long-forgotten industrial towns rarely make the front pages in Russia, never mind internationally. But for a few days in September Norilsk, home to the world’s largest producer of nickel and palladium, hit the headlines, although for all the wrong reasons.
A chemical spill turned the Daldykan River red, and photographs of the contamination went viral. Norilsk and other so-called monotowns are located in some of the most inhospitable parts of the country. Centred on a single factory, plant or mill, they fuelled Soviet-era industrialisation.
They remain key to Russia’s economy, yet many are now in terminal decline. Read more
Over the past five years Russia has reinforced its dependence on hydrocarbons in exports and in domestic use. It has continued to increase and modernise oil and gas production, initiated a pivot to the east to diversify its export markets, and accelerated construction of transit avoidance pipelines on the European gas front.
Its recent history of championing pipes to Bulgaria and Turkey showcases Moscow’s agility in mixing geopolitics with hydrocarbons. Through the leadership of Novatek, a relative upstart, Russia is fast approaching liquefaction and shipping of LNG in material quantities. By most measures, and despite sanctions, Russia is a formidable force in the extraction and commercialisation of hydrocarbons. Read more
By Amal-Lee Amin, Inter-American Development Bank
Four years ahead of schedule, the Paris climate change agreement is expected to enter into force next month. Latin American and Caribbean countries played a major role in the diplomatic push to secure the agreement and are now making progress on ratifying it.
As of today, over a dozen countries from the region have also ratified – including its largest emitters, Brazil and Mexico, and also some of its smallest and most vulnerable, Barbados and Belize.
Yet ratification is only an initial step towards implementation. Fortunately, the region has made progress on designing the policies and institutions to implement the agreement. Peru, Brazil, Mexico and Costa Rica were among the first developing countries to put forward voluntary emission reduction pledges starting in 2008. Read more
By Simon Currie and Laura Kiwelu, Norton Rose Fulbright
Harnessing abundant and free solar energy has long been regarded as the obvious solution to Africa’s persistently low electrification rates. After a sluggish start due to unproven technology and high capital costs, we are now witnessing a solar revolution which will transform Africa’s energy landscape over the next decade.
In February 2015 the first solar photovoltaic (or PV) grid connected plant in Africa outside of South Africa was inaugurated at the Agahozo-Shalom Youth Village in Rwanda, a refuge for those orphaned during and after the 1994 genocide.
With a layout resembling the Africa continent, its ramifications have spread far beyond the 8.5MW it exports to the grid, attracting visitors such as Bono and members of the US Senate. In Africa the usual development period for power plants is nine years from inception. Yet this project was generating power barely two years after completion of the feasibility study. Read more
The Amazon rainforest harbours about 10-15 per cent of all the world’s biodiversity on land and stores an estimated 150-200bn tons of carbon. Its rainfall generates approximately 15 per cent of the fresh water that flows into the Earth’s oceans. The people who live in the Amazon or on its borders include so many ethnic groups and speak so many languages that the region is one of the most culturally diverse places on the planet.
It is the last place you would expect an industrial revolution to take place. Read more